What Does A CEO Need To Know?
By Bob Norton
Why You Always Need An Experienced CEO Involved At Some Level
Would you walk into a legal trial without an experienced attorney to represent you? Would you let a new medical school graduate perform their first brain surgery on you alone? Of course not!? However, many entrepreneurs who start a company print “President” on the door and do just that. They tackle huge new problems without any experience as a CEO in one of the most complex, expensive and risky things they will ever do! So they think they save money, but they often drive their risk up 1,000% and costs 10% to 100% or more!
Consultants are plentiful, advice is easy to get, it can be free or VERY expensive, but is it from someone who has success in the past doing exactly that job? Not just as a ‘consultant’ but with full responsibility for success? In this environment mistakes can be fatal so don’t make this mistake.
No wonder only 6 in 1,000,000 ideas will ever reach an IPO. Contrary to popular belief only one in ten venture backed companies will reach an IPO and 60% will go bankrupt AFTER receiving VC funding! Only about 10% will go public after VC funding! The odds are stacked against you, so don’t learn the hard way all the lessons that someone else has already learned. Like a good doctor or lawyer this is one service you really can not afford to skimp on.
One day a week from an experienced CEO may be the difference between success and failure, and is guaranteed to improve your business in many ways that will pay for the cost many times over.
Things For New CEOs To Consider
- FACT: If you have not built a company before you can not possibly know what you don’t know.
- You don’t want to bet your company that you will get everything right the first time without some help and specific experience.
- Even with 80 hour work weeks you don’t have the time to do everything.
- You are unlikely to raise significant amount of capital without an experienced CEO in place, or ready to join on funding.
The smartest founders learn and understand what they do not know and get help from those who have done it before ( a “Prudent CEO”) either full-time or part-time. This is one reason why I founded C-Level Enterprises, to catalyze the success of young companies who are ready to grow rapidly and help them avoid the costly mistakes and risks that most new entrepreneurs can make at a cost that is a fraction of a full-time CEO.
One day a week from an experienced CEO may be the difference between success and failure, and is guaranteed to improve your business in many ways that pays the cost many times over. A board of directors typically can not provide this level of input and experience as they have neither the time of the breath of experience across all disciplines unless that board member is a CEO. I recommend at least two experienced CEOs on a board of directors at all times with this in mind.
What is a CEO’s Job Anyway?
Managing Risk? Would You Jump Your First Time Without Training and Help? Many Entrepreneurs do, which is one major reason why more than 90% of new businesses fail!
(Mr. Norton is center with his expert consultants who had combined jumps of over 4,500 at the time)
Few people see and understand what the CEO actually does 40 to 80 hours per week. A CEO’s job is to fully understand all disciplines including sales, marketing, finance, operations and product/technical aspects such that strategy and market position can be defined and resources can be properly allocated between required functions. This requires the development of a vision of what the company will look like 1,2 and 3 years out at a minimum in every department and in market position. This is an elaborate concept so please read the article on vision.
The CEO is also responsible for seeing that everyone has all the information they need about all other activities that could possibly impact their area/department. This is obviously a major communications challenge. They also need to take into account the three main constituencies (shareholders/owners, employees and customers), as there will be many situations where it is a judgment call between which constituency is more important to serve with each major decision. i.e. raising employee salaries helps one constituency while it can be a negative benefit for the other two.
Given that each division always wants more resources, and that they compete for a limited total budget, the CEO must constantly play Solomon, decide priorities and understand enough about each function to decide what is necessary, versus desirable, to complete that department’s goals and priorities on time, as well as all company objectives.
This must be integrated into a complete “vision” of what the company (and market) will look like 1, 2, 3 and 5 years out. Then this vision must be communicated with passion, enthusiasm and clarity to all employees, customers and investors at a level of detail they can understand and absorb in the time they have available to listen.
CEOs are also responsible for setting the organizations values and ethics. The ONLY way to do this is by example. No amount of talk is going to convince unethical people to act ethically. Therefore you must communicate what is right and wrong very clearly and act on that consistently. This means firing people immediately who do unethical things. Without consistency ethics will drift in the wrong direction over time until what used to be totally unacceptable becomes common practice. Wall Street has fallen victim to this again and again, with major scandals like the mutual fund “market timing” issue happening every several years. In this case greed is driving and rationalizing ethics, not values and good examples with oversight.
Most CEOs work their way up through a single side of the business, and are therefore heavily experienced (and biased) towards that part of the business. This can cause poor decisions in other areas of the business due to lack of expertise in these other areas. It can even force out the best people in those others areas, who become aware they are far more experienced than the CEO in their functional area and loose faith in the CEO or organization as a whole. I have seen many cases where technical founders churned through many sales and marketing people and vice-versa.
Probably not the kind of position for on-the-job training! This is why a seasoned CEO is the #1 variable for sophisticated investors to fund a company. Today only companies with experienced CEOs (meaning many years as CEO at another company) will generally receive any professional funding. Angel investors may invest in new CEOs with the expectation that an experienced one will be brought in as soon as the product is ready.
There is a lot of talk about “empowerment” and flatter organizations due to better information technology, outsourcing and other major trends that can really reduce management layers and overhead. This allows a CEO to have more leverage than ever, but also creates traps without the right model of management. So where do you draw the line of where empowerment ends and something else begins? See below: